Paging Dr. Freud #nlpoli

Moya Greene, head of the Premier’s Economic Recovery Team, told municipal leaders last week that the provincial government spends almost $2.0 billion less on health care than it actually does.

Weird.

She said the government spent 25% of its budget on health care.  VOCM reported it: “Greene says healthcare is about 25 per cent of the province’s total expenditures, and that it is a conversation we have to have.”

The actual share in 2019 was 42% and the forecast share in 2020 in 37%. You can find the figures in the budget tabled in the House of Assembly at the end of September.

This is a really bizarro comment since Greene is already well into her job of sorting out both government overspending and re-organizing the economy.  She should have a handle on all numbers. 

After all, Greene and her provincial recovery team will deliver a preliminary report by the end of February. Sure she’s not due to have the whole thing finished until April, but the first deadline of February is really only about three months away, if you allow an interruption for Christmas.

But that’s not the only weirdness.

Financial Fustications #nlpoli

If we had Equalization, we'd have a budget surplus.

On Friday, 20 Mar 20, Premier Dwight Ball wrote to the Prime minister to say that the financial arse was out of Newfoundland and Labrador.

Ball included in the letter not a shred of financial evidence nor did he include any hint as to what exactly he expected the federal government to do to fix this situation.

Last weekend, once the public heard about this alarming letter, the Premier was anywhere and everywhere confirming that the provincial government was mostly, completely destitute.

*This* weekend his finance minister is – not surprisingly – telling a completely different story. 

All around in circles #nlpoli

Going around in circles must be frustrating.

Plummeting crude prices have dropped refining margins to negative numbers and so it isn’t surprising that Come by Chance refinery announced Sunday it is shutting down operations for upwards of five months.

The official excuse is the pandemic but the real reason is economics. There’s no point in running a business that isn’t making money.  And you cannot make money in a global market where demand for petroleum products has dropped like a stone.

The same economic reality that is hitting the oil industry is hitting governments in provinces that depend heavily on oil royalties.  In Alberta, Western Canada Select was trading at less than five Canadian dollars a barrel on Friday. 

According to the National Post, the provincial government estimates that every dollar in crude prices costs the Alberta government $355 million in lost royalties. Economist Trevor Tombe estimates the drop in crude prices thus far has cost the Alberta government about $5 billion in royalties.

Newfoundland and Labrador is in worse shape.  Going into what is now the crisis year of 2020, Dwight Ball’s Liberal administration forecast as deficit of almost $800 million.  Last Thursday, the provincial legislature approved government requests to borrow almost $3 billion dollars directly or through the provincial hydro corporation.  Finance minister Tom Osborne told reporters outside the House of Assembly he had no idea how big the 2020 deficit would be.

The 2005 and 2019 Federal-Provincial Agreements #nlpoli

The Atlantic Accord functions in Newfoundland and Labrador politics in two ways.  There is the agreement between the Government of Canada and the provincial government that established the joint management framework for the Newfoundland and Labrador offshore. At the same time, there is the political prop and the associated mythology that has, in largest measure, replaced the actual agreement in both the popular and political/bureaucratic understanding of it.

Neither the 2005 nor 2019 federal-provincial agreements commonly referred to as the Atlantic Accord or revised Atlantic Accord had anything to do with development and management of the oil and gas resources offshore Newfoundland and Labrador. Neither changed the 1985 agreement directly or indirectly.

The widely-held belief is completely different. The popular misconception comes from the fact that in both cases, the premiers faced with financial difficulties linked their demands for money from Ottawa to the Atlantic Accord. In both cases, the issues were about something else.  In 2005, the discussion was actually about Equalization. It 2019, the final agreement was about financial assistance for the provincial government about its own financial difficulties and to deal with the troubled Muskrat Falls project.   

Spending the future (2005) #nlpoli

" [The change in the province's financial outlook] That's very dramatic...Some people are going to stand back and say 'Oh yeah, that's just because your very lucky. That's because the oil prices have gone up.' Well, no. That's part of it. But we had a tough budget, a prudent budget. We've managed the province, fiscally, very tightly."

Premier Danny Williams

Quoted in "Cash boon may fund province's infrastructure"

by Rob Antle, The Telegram, 22 October 2005, p. A3

Premier Danny Williams is absolutely correct.

The provincial government's financial state is a direct result of oil and gas revenues. High oil prices have produced a boost beyond what the Real Atlantic Accord, the offshore royalty regimes and development at Voisey's Bay would have produced anyway.

Unfortunately, the premier's positive comments may have two unwelcome results. First it may make it seem as though the province can afford to increase spending in a number of ways. Second, his comments divert attention away from the fundamental failure of the Williams administration, two years into its mandate, to produce integrated plans to address the province's financial windfalls in a way that will yield the greatest long term benefit.

Population density and just dense #nlpoli

The Government of Newfoundland and Labrador is in financial trouble.

It will spend this year about $3.0 billion more than it will take in.  In fact,  this year, as last year,  banks and other sources of borrowing will be the largest single source of income for the provincial government.

Newfoundland and Labrador is not a poor place, not by any stretch of anyone's imagination.  In absolute terms, the government will bring in more than twice as much than it did 25 years ago.  Inflation has not doubled in that same period.

Leave out the borrowing for a second. On a per person basis, the provincial government will bring in more revenue this than any other province in the country, bar none.

The problem we have is that government will spend so much more than it brings in.  That's what a deficit is:  spend more than you make.    Simple idea.

And yet so many people just keep trying to blame our problems on the federal government for not giving us handouts.

Jerusalem, Eldorado, and Perdition #nlpoli

Part I:  The development of our country
_______________________________

The Heritage Newfoundland and Labrador website "aims to provide school students and the general public with a wide range of authoritative information on the province's history, culture, and geography. It is based at the Memorial University of Newfoundland. Faculty, graduate students, and professional writers contribute articles, while undergraduate students provide support as research assistants."

That statement of authority is one of the reasons why the introductory sentence to its section on the impact of Churchill Falls is so intriguing:

The Upper Churchill Falls hydroelectric project remains one of the most notorious ventures in Newfoundland and Labrador's resource-development history.   

There is no such thing as the "Upper Churchill Falls" project.  There is no upper Churchill Falls or, indeed, a lower one.  There is simply Churchill Falls.

Afraid of a second moratorium #nlpoli

During the filibuster in the last session of the House of Assembly, education minister Dale Kirby reminded everyone of why the current administration is following its financial policy.

Didn't want to create a second moratorium,  Kirby said.  or words to that effect.

Significant cuts to government spending of the kind needed to cope with the government's financial problem would cause a second moratorium.  Kirby's point was that the current crowd were not gonna do that.

No way.

Continuing continuity #nlpoli

In the face of thousands of well-informed people telling Dwight Ball that the provincial government must change direction to survive, in the face of mountains of evidence that the province has been on the wrong course since 2005 or so, and lately, in the face of dire warnings from the folks who advise others about the value of the government's bonds,  Dwight Ball will continue to do what everyone knows doesn't work.

The provincial government is abandoning its economic plans, as the Telegram's James McLeod would have it last Friday.

Well, not really.

In-house and cheap #nlpoli

Provincial government communications consists chiefly of making up vacuous comments for ministers to recite.

They are called key messages.  In the uncomms-speak of the government bureaucrats,  they are KMs, pronounced Kay-Emmzzz.

On Thursday, two rating agencies downgraded the province's rating with a negative outlook.  Not surprising but definitely not helpful since the government has already exhausted its political capital for nothing thanks to the complete disaster last spring.

Anyway, let's take a look at what Moody's said about the government's finances.  Specifically let's look at what they said about the negative trending.

The Budget and the Economy #nlpoli

The Conference Board of Canada says the recent budget has tipped the provincial economy into a recession next year.

Finance minister Cathy Bennett says that's bollocks.

Let's see which is right.

The other side of the hill - choices and values 2 #nlpoli

Wednesday's post - Choices and values - came from the perspective of someone outside the echo chamber of politics in Newfoundland and Labrador.

Ordinary voters - who mostly do not work for the government -  don't feel like the pain from this budget is shared fairly by all.  They just don't believe any assurances that everyone else will feel comparable pain in the future.

But on the other side of the hill, the politicians have a perspective that we shouldn't ignore either.

The Incrementalists #nlpoli

Today is budget day.

There's been lots of speculation flying around, most of it a confirmation that people have little real information about anything. If you have been paying attention, though, you can probably make a fairly good guess at what Thursday's budget will look like.

What follows is based entirely on what Dwight Ball and his ministers have done and said in public, combined with a general knowledge of the provincial economy, the budget process and that sort of thing.

Read this now and in a few hours you can see how close this is to the actual budget.

S and P lowers NL rating, cites uncertainty of fiscal policy #nlpoli

Standard and Poor's said on Friday that the company had lowered its credit rating for the Government of Newfoundland and Labrador and Newfoundland and Labrador Hydro from A+ to A with a negative outlook.

In a news release, the company said the "negative outlook reflects our view of the uncertainty of the magnitude of the government's expected fiscal policy response to lowered offshore royalties and projected operating and after-capital deficits."

S and P's base-case forecast for 2014 to 2018 gives the government an "average operating deficit of about 7% of adjusted operating revenue and average after-capital deficits of close to 19%

of total adjusted revenues."  S and P calls this weak.  The company also said that it considers the government's "budgetary performance is subject to considerable volatility, given its high reliance on resource royalties...."

The company said it considers both the province's debt burden and contingent liabilities level to be high.  The company cited unfunded pension liability and the risk associated with Nalcor and Muskrat Falls as key issues in these areas.  "We believe the province has an incentive to provide extraordinary government support to Nalcor in the event of financial stress." Standard and Poor's also considered the government's luiqidity level to be low.

S and P  noted the strong federal-provincial financial relationship,  the provincial government's financial management history,  and strong budget flexibility as factor's working in the provincial government's favour.   "We believe that the province's economic and fiscal situation will make public acceptance of fiscal measures, such as tax increases and spending reductions, much more acceptable despite their unpopularity."  

The negative outlook reflects the uncertainty of the magnitude of the government's expected fiscal policy response to lowered offshore royalties and projected operating and after-capital deficits. We could revise the outlook to stable if the newly elected government takes the fiscal measures necessary to establish an improving trend in its budgetary performance beyond fiscal 2017, and develops a credible plan to restore budgetary balance in the medium term. Conversely, we could take a negative rating action should the province's budgetary performance show signs of weakening further beyond what we expect for fiscal 2017, particularly if projected after-capital deficits remain near 23% of consolidated operating revenues or the tax-supported debt burden reaches 270% of projected consolidated operating revenues [currently 100%].

-srbp-

Metrics #nlpoli

Telegram editor Russell Wangersky tried on Monday to put the government’s financial mess into some shape that people could understand.

The simple fact, to put a shortfall of $2 billion into perspective, is that if the provincial government wanted to cover those costs outside of oil revenues, it would have to not only double the province’s income tax rates, but double the provincial share of the HST as well. (Given the current five per cent federal and eight per cent provincial breakdown of the 13 per cent HST, that would bring this province’s total sales tax to 21 per cent.)

If we could do that, we’d break even, says Russell.

Well, ummm,  no.

Russell’s got the right idea.  He just missed another billion dollars of borrowing in the budget for capital spending.  The way the government reports its spending that capital works borrowing keeps getting left out but it is stuff we have to pay for. 

And that  $3.0 billion is just to cover this year.  Next year,  the problem is due to get worse again.

Consistency #nlpoli

"We need to find a way to bridge us [from] where we are currently until the commodities rebound and be [sic] the significant contributor we need them to be." That’s what Premier Dwight Ball told NTV’s Mike Connors in an interview that will air in full this coming Sunday.

The words are very familiar. 

We heard them just a few short months ago.

"I have laid out a five year plan,” Conservative finance minister Ross Wiseman told the House of Assembly last spring, “to bridge the commodity revenue dip and get us back to surplus, step by responsible step." 

Two solitudes #nlpoli

CBC and the Telegram  carried a story on Tuesday that the province would be hit by a “mild recession” next year. There’s not much real news in that since oil and minerals will all be down in price for the foreseeable future. Major projects are coming to an end.  All known.  All foreseen. But since the Conference Board of Canada issued the release and used the words “mild recession” and so that makes it news.

Later on Tuesday,  everyone carried the story that Premier-designate Dwight Ball had written to the federal government to try and forestall the two percent hike in the harmonised sales tax. Same thing:  news release, therefore news.

At the risk of repeating the same thing again, let’s just recall that the latest change in oil prices means that 36% of government spending this year will be covered by borrowing from the banks.

The sales tax hike won’t make much of a difference this year.  The  $50 million or so it will bring in between January and March will amount to precisely 1.6% of the revised borrowing. It was frig-all before oil dropped. It is even moreso frig-all now when compared to the magnitude of the provincial government’s financial problems.

We can say that revenues won’t be much better next year.  This is another point worth bearing in mind.  The local media have habitually followed slavishly behind the provincial government’s lead over the past decade and talked about last year, not the year coming up. and in truth.  Well, this whole HST thing is another example of chasing mice when the deer are just over the hill.

The same sheet of paper #nlpoli

In all the elections in the 21st century, the three political parties in Newfoundland and Labrador have proposed what are essentially the same economic policies.

The differences are minor.

Finding the voice of the next generation #nlpoli

“My Government will harness the desire among Newfoundlanders and Labradorians to cultivate greater cultural, financial and moral autonomy vis-à-vis Ottawa.”

That’s from the 2007 throne speech. 

At the time, the language started a few people.  That’s odd because Danny Williams was basically building up to that point for six years.  He started with a speech in Halifax in 2001 shortly after he became leader of the provincial Conservatives.  He ramped up the rhetoric and the tension through 2004 and into 2005. 

Then in 2006, he went to war again, this time with Stephen Harper.  It was the Conservative re-election strategy and came complete with an anthem composed in 2004.

What’s weird about the 2007 throne speech language in hindsight is not that the Conservatives used it or that some people found it surprising.

Take a look at the second use of the word autonomy and see if you can spot the oddity.

Chainsaw Earle keeps austerity on the table #nlpoli

NDP leader Earle McCurdy called the province’s major open line show on Thursday and by the sounds of things he hasn’t backed off the position that the size of the government’s financial problems will mean more cuts.

Sure he said he was opposed to austerity,  but what Earle did say was that the government will have to cut jobs, lay people off and slash spending to cope with its financial problems. 

Potato, potato, Earle.